Investing in Cuba: Certain Suicide

In a desperate attempt to survive the multisystemic crisis that is about to topple it, the Cuban regime has taken a series of steps that, rather than a strategy, seem like acrobatics. Its new plan does not include the first thing that should be implemented in the economic sphere: a series of reforms, based on free enterprise and free markets, to restructure the model.

Yes, the regime has announced that it will allow investments in the private sector, and so has the Biden Administration, as part of its policy to empower the Cuban people by allowing investments by American companies together with private companies on the Island. However, it is naive to think that there is a real private sector in Cuba.

For Cubans on the island, it is impossible to open businesses spontaneously. The system does not allow or promote this. Such enterprises must be approved by various governmental bodies, and it is the State that decides who is granted the favor, in what sector, and under what conditions. Those who are ultimately authorized to do so are usually people with ties to the Government. Even so, these companies cannot import or export products and services directly. Rather, for this they must use state-owned ones which charge 20% for their intermediation. Beyond this, these "private" entities may have accounts in dollars, but they may only dispose of them to pay for import and export processes.

For Cubans living abroad, after almost 60 years of refusing to let them invest in the country, the regime has also launched a formula to attract them, creating a portfolio of opportunities comprised of some 60 projects that, it believes, may be attractive to the community of exiles. These projects are sponsored by the provincial governments, and the investment amounts do not exceed $500,000. Apart from this, for Cubans abroad there are no other investment options in the country. In this way, seeking to attract those in the Cuban-American business community who might dream and allow themselves to be seduced by those who expropriated, expelled or politically persecuted them, is a maneuver that is bound to fail, no matter how it seeks to exploit the ignorance, opportunism, moral baseness, complicity and greed of some.

The illusory American dream of investing in Cuba

Recent announcements by the Cuban and US governments about investment options on the island suggest that a new thaw could be taking place behind the scenes. If this were the case, it would be a misguided US policy, above all in light of how the previous detente ended, with the brakes slammed on reform, a crackdown on entrepreneurs, and sonic attacks on diplomats. The cliché that certain sectors of the Cuban economy —tourism, energy, agro-industry, food production, real estate sector, mining, biotechnology— present attractive investment possibilities is nothing more than that.

In addition, American businesspeople should know that the argument that companies from Canada, Spain, Great Britain and other European and Asian countries will enjoy advantages if they are "the first" to learn the terrain, have real relationships with those in power, and master the invisible rules of businesses on the island (an argument advanced by the anti-embargo lobby) is just another deceptive carrot that will prove a waste of time and capital.

When making an investment, it is necessary to carry out a comprehensive assessment of the market, one which makes it possible to determine levels of risk and, above all, when one will recover their capital. In the case of Cuba, the considerations to be taken into account are, obviously, more complicated than those that must be borne in mind in any other country, given the prohibitions entailed by the embargo and the legal limitations imposed by the dictatorship itself. In this regard the Cuban market suffers from a major disadvantage in the tough task of attracting investment. In terms of financial freedom, the island ranks 172nd out of 184 nations. The categories used to evaluate countries and that inform this international ranking are property rights, financial freedom, the rule of law, labor freedom and fiscal health.

To this must be added the deteriorating state of the country's infrastructure. Its energy network is overwhelmed, more than 70% of its real estate is in mediocre or poor condition, public and private transport structures are almost non-existent, and what exists is in ruins. The country is suffering from a deep liquidity crisis, its external debt is almost the same as it was when it managed to have it forgiven in 2015, and the economy is in the throes of a volatile inflationary crisis.

Even government-affiliated economists have criticized the government for its mismanagement. The issue of the debt has been handled as if it were a marginal, unimportant problem. The waiving of over $42.08 billion in 2015 by several creditors, including Russia ($29 billion), Mexico ($340.9 million), Japan ($1.4 billion), China ($2.83 billion), Uruguay ($35 million) and the Paris Club ($8.48 million) was a missed opportunity5. In this regard, the economist Juan Triana said: "Unfortunately it was not taken advantage of, and we have fallen back into an unsustainable situation. Debt raises the country's risk, damages its finances, spoils the business environment, and raises the financial cost of any business operation."

Under these conditions, far from being an attractive market, Cuba is a very high-risk one. The current situation of foreign investors on the island is chaotic and tense. Many do not know what to do in the face of the financial restrictions that prevent them from repatriating capital. Those who already have a contract, in the face of the magnitude of the multisystemic crisis, do not make the decision to invest. And those who are already in the market operate with losses and try to produce as little as possible to justify staying and not losing the investment.

Conclusions

The island is not a forbidden fruit in terms of opportunity/investments. This is just a myth stoked for decades to attract foreign investment, but it has not worked.

At the end of the day, any investment by an American businessperson, even after the announcement by the Biden Administration that it will allow investments in the private sector (which, in practice, does not really exist), will have to be scrutinized with a view to its opportunity cost, and the result will be obvious. Investing in a dictatorship, where capitalism and the laws that support free markets and free enterprise are absent, is not comparable to investing in a democratic, even imperfect, nation where there is a free market, and prices, and a separation of powers. In Central America and the Caribbean there are markets where low-risk opportunities abound. The Dominican Republic, Guatemala, Mexico, Costa Rica, Panama and Jamaica, among other countries, present possibilities for investment in infrastructure, logistics, IT, manufacturing, food production, transport, tourism, etc.

Now, the businessperson who wants to commit financial suicide in Cuba is 100% guaranteed success. It will only be safe to invest in the island successfully and safely when Havana is home to a democratic government that enacts laws providing for a free market, free enterprise and free citizens.